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British Gold Standard Act and Report of Committee on Currency

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British Gold Standard Act and Report of Committee on Currency June 1925 JUNE, 1925 FEDERAL RESERVE BULLETIN 375 BRITISH GOLD STANDARD ACT AND REPORT OF COMMITTEE ON CURRENCY There is presented below the text of the bill (3) Where by any appropriation act passed after passed by the British Parliament ato facilitate the commencement of this act power is conferred on the return to a gold standard and for purposes the treasury to borrow money up to a specified amount, 1 any sums which may at the time of the passing of that connected therewith. ' Following the bill is act have been borrowed or guaranteed by the treasury the full text of the report of the committee of in pursuance of this section and are then outstanding experts on the currency and Bank of England shall be treated as having been raised in exercise of the power conferred by the said appropriation act and the note issues presented on February 5 and made amount which may be borrowed under that act shall public on April 28. be reduced accordingly. 3. This act mav be cited as the gold standard act, GOLD STANDARD ACT, 1925 1925. 1. (1) Unless and until His Majesty by proclama- REPORT OF THE COMMITTEE ON THE CURRENCY tion otherwise directs— AND BANK OF ENGLAND NOTE ISSUES (a) The Bank of England, notwithstanding any- thing in any act, shall not be bound to pay any note of the bank (in this act referred to as "a bank note") TREASURY MINUTE DATED JUNE 10, 1924 in legal coin within the meaning of section 6 of the Bank of England act, 1833, and bank notes shall not The Chancellor of the Exchequer proposes to the cease to be legal tender by reason that the bank does board that the following committee should be ap- not continue to pay bank notes in such legal coin. pointed to consider whether the time has now come (b) Subsection (3) of section 1 of the currency and to amalgamate the Treasury note issue with the Bank bank notes act, 1914 (which provides that the holder of England note issue, and, if so, on what terms and of a currency note shall be entitled to obtain payment conditions the amalgamation should be carried out: for the note at its face value in gold coin), shall cease The Right Hon. Austen Chamberlain, M. P. (chair- to have effect. man); Sir John Bradbury, G. C. B.; Mr. Gaspard (c) Section 8 of the coinage act, 1870 (which entitles Farrer; Sir O. E. Niemeyer, K. C. B.; and Mr. A. C. any person bringing gold bullion to the mint to have it Pigou. assayed, coined, and delivered to him), shall, except as My lords concur. respects gold bullion brought to the mint by the Bank of England, cease to have effect. TEXT OF REPORT (2) So long as the preceding subsection remains in force the Bank of England shall be bound to sell to any May it please your lordships, person who makes a demand in that behalf at the head (1) By Treasury minute of June 10, 1924, we were office of the bank during the office hours of the bank, appointed a committee to consider whether the time and pays the purchase price in any legal tender, gold has now come to amalgamate, the Treasury note issue bullion at the price of £3 17s. lOJ^d. per ounce troy with the Bank of England note issue, and, if so, on of gold of the standard of fineness prescribed for gold what terms and conditions the amalgamation should coin by the coinage act, 1870, but only in the form of be carried out. bars containing approximately 400 ounces troy of fine (2) We have held 9 meetings and have heard 13 gold. witnesses, including the governor of the Bank of 2. (1) Any money required for the purpose of ex- England, Mr. McKenna, Sir Robert Home, Professor change operations in connection with the return to a Cannan, Sir George Paish, Mr. Keynes and repre- gold standard may be raised within two years after the sentatives of the clearing banks, the Association of passing of this act in such manner as the treasury British Chambers of Commerce, and the Federation think fit, and for that purpose they may create and of British Industries. issue, either within or without the United Kingdom (3) The greater part of our evidence was taken and either in British or in any other currency, such se- during the months of June, July, and September, curities bearing such rate of interest and subject to 1924, when the sterling dollar exchange was still at a such conditions as to repayment, redemption, or other- discount of 10 to 12 per cent, but we heard the governor wise as they think fit, and may guarantee in such man- of the Bank of England a second time on the 28th of ner and on such terms and conditions as they think January, 1925. proper the payment of interest and principal of any On accepting office as Secretary of State for Foreign loan which may be raised for such purpose as aforesaid: Affairs, Mr. Chamberlain ceased to act as a member Provided that any securities created or issued under of the committee. Sir John (now Lord) Bradbury this section shall be redeemed within two years of the took the chair at the remaining meetings. date of their issue, and no guarantee shall be given under this section so as to be in force after two years THE CUNLIFFE COMMITTEE'S RECOMMENDATION from the date upon which it is given. (2) The principal and interest of any money raised (4) The natural starting point of our inquiry was under this act, and any sums payable by the treasury in the recommendation of the committee on currency fulfilling any guarantee given under this act, together and foreign exchanges after the war (the Cunliffe with any expenses incurred by the treasury in connec- committee), that the currency note issue should be tion with, or with a view to the exercise of, their powers transferred to the Bank of England when it had been under this section shall be charged on the consolidated ascertained, from experience in a free gold export fund of the United Kingdom or the growing produce market, what fiduciary issue is compatible with the thereof. maintenance of a central gold reserve of £150,000,000. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis June 1925 376 FEDERAL RESERVE BULLETIN JUNE, 1925 (5) These conditions have not yet been fulfilled, the internal purchasing power of the pound to its ex- and we have found it necessary to enter somewhat change parity, and restricted our foreign investments fully into the questions whether a return to the gold to our normal export surplus. standard on the basis of the pre-war sovereign is, in (14) Further, we were satisfied that the mere present circumstances, no less desirable than at the announcement that the power to prohibit the export time of the Cunliffe committee's report; and if so, of gold would not be continued beyond December 31, how and when the steps required to achieve it should 1925, would automatically and rapidly bring about be taken. the credit conditions necessary to effect these adjust- THE GOLD STANDARD ments, and that the effective gold standard could thus be restored without further danger or inconvenience (6) The alternatives are— than that which is inevitable in any period of credit (a) To return to the gold standard on the basis of restriction and falling prices. a devalued sovereign, i. e., the reestablishment of a (15) At that time the British and American price free gold market with a unit identical in name but of a levels appeared on the surface—though it is not safe to lesser gold content than the pre-war unit, and attempt to draw precise conclusions from a comparison (b) To attempt to find a basis for the currency unit of index figures compiled on different bases—to be other than gold. fairly well adjusted to the current rate of exchange; (7) The former need not, now that the current and it was, therefore, to be expected that a fall in exchange rates are already within a small percentage sterling prices of some 10 or 12 per cent, or a similar of the pre-war parity, be seriously considered. It rise in dollar prices, would have had to take place was never, in our opinion, a policy which the United before equilibrium could be secured with the exchanges Kingdom could have adopted. at the pre-war parity. (8) The latter, in the form of proposals for substi- (16) The problem as it then presented itself was tuting the price level of commodities in general for gold whether the undoubted advantages of an immediate as the regulating principle of the currency, has been return to parity were a sufficient compensation for the fully and carefully explained in evidence before us. We inconveniences—temporary though possibly severe need not here set out the arguments by which it is while they lasted—of the measure of " deflation" supported, which have been published and are now necessary to bring about the adjustment, or whether well known. "We need only say that, as a practical it would not be more prudent to pursue, at least for a present-day policy for this country, there is, in our few months longer, a waiting policy in the hope that opinion, no alternative comparable with a return to the the disparity would disappear through a rise in Ameri- former gold parity of the sovereign.
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